India's startup ecosystem see 165 M&A's in 2016

This number, while a 20% increase from 2015, seems like a small percentage when compared to the 56% increase from 2014 to 2015, as per data provided by software product think tank iSPIRT.Varsha Bansal | ET Bureau | Updated: December 29, 2016, 09:48 IST

This number, while a 20% increase from 2015, seems like a small percentage when compared to the 56% increase from 2014 to 2015, as per data provided by software product think tank iSPIRT.

According to experts, though the deal activity increased this year, the sector failed to see many big-ticket M&As.

They, however, feel the coming year will be better, but the pace may remain consistent with that of 2016. “There will be a steady growth in M&As but we don't expect a significant jump," said Gaurav Deepak, co-founder, Avendus Capital.

“India is a strategic market for global companies, and there is keen, albeit measured intent. We also see private equity playing a meaningful role in buyouts during 2017," he added.

Demonetisation will also have an impact as companies will wait for the dust to settle down before starting a new transaction. However, the first quarter of 2017 will see deals that were already in play before the phase of cash crunch began getting finalised, according to an investment banker, who recently closed two deals.

Experts also think that in the past couple of years, exit numbers we re reflective of venture capitalist (VC) investments made 10 years ago. Pre-2008 vintage VC funds are under exit pressure because their fund cycle is nearing the 10-year term.

“We will see a lot of new startup build outs as we are in the early cycle of new market creations, this phase will see less consolidations," said M Thiyagarajan, fellow, M&A Connect at iSPIRT.

The software product think tank has noticed two trends that VCs are betting on. First is, 'India 2', which is creating a market by expanding the 40-million Internet user base to 400 million. And the other being, India as a global software-as-a-service hub, where startups build software products for international players.

“India is not only emerging as global SaaS hub, but interest in Indian startups for machine learning and data science is also on the rise," said Rajan. “The most interesting M&A this year was Apple's acquisition of Hyderabad's machine learning startup Tuplejump."

Some players in the market expect 2017 to be a stellar year for exits through M&As and initial public offerings (IPO), on the lines of Quick Heal Technologies and Yatra Online.

“We are likely to see more number two players being bought by number ones," said Sudhir Sethi, founder of IDG Ventures India. “Since many Indian companies, in both software and internet and mobile space, have scaled up substantially, they are likely to be bought out by international players." Sethi also expects secondary exits to gain momentum.